Asian equities struggle to follow Wall Street higher
Wall Street rallied post-FOMC as Jerome Powell’s post-meeting comments were interpreted as a consistent, but less aggressive pace of rate hikes through the rest of the year. That was all the excuse that the ever-present pent-up buy-the-dip demand needed. The S&P 500 rose 1.46%, the Nasdaq rallied by 2.50%, and the Dow Jones added 0.95%. Today in Asia though, there are already signs that the momentum is waning. US futures continued rallying initially, but have since reversed into the red, with S&P 500, Nasdaq, and Dow Jones futures down around 0.15%.
It should be noted that although US equities and bonds reversed some of their losses, it was only a dent in the scale of recent drops. Although we may not get more 0.75% rate hikes, the Fed has lifted its year-end rate target, so markets can expect at least another 175 bps of tightening this year, no matter what the month-to-month split is. There is a US holiday on Monday, and tomorrow, Goldman Sachs is saying that we will have $3.4 trillion (yes, you read that correctly) of notional options expiries on US-listed indexes and stocks. Ahead of a holiday weekend, expected to impact liquidity anyway, the huge volume of expiries tomorrow could distort market moves and pricing. I would be taking price moves on Wall Street for the rest of the week with a large grain of salt.
In Asia, equity markets have been content to dip their toes back in the water in line with the move higher on Wall Street overnight. That said, much of their early gains have been reversed as US futures fell, with China markets now slightly down, hinting again, that bullish momentum has waned. Japan’s Nikkei 225 is 0.50% higher, with South Korea’s Kospi up 0.60%. Taipei has fallen by 1.0% ahead of an expected central bank rate hike later today.
In mainland China, markets have reversed early gains to sink into the red. The Shanghai Composite is 0.25% lower, with the CSI 300 down 0.20%. Hong Kong is in retreat, falling 1.50% today. News that the government intends to mass test the city of Shanghai every weekend into July for Covid-19 may also be limiting sentiment. As I have said previously, renewed virus lockdowns present a very real threat to Chinese equities.
In regional markets, the picture is more upbeat. Singapore has risen by 0.70%, with Kuala Lumpur gaining 0.70% and Jakarta soaring by 1.60%. Bangkok is 0.60% lower as the baht struggles and political tensions increase. Manila has gained 0.55%. In Australia, early gains have also been wiped out leaving the ASX 200 down 0.25%, and the All Ordinaries unchanged.
Early European markets may struggle to replicate the ECB-induced gains seen overnight after bullish momentum faded so quickly in Asia today. Early comments from the ECB’s De Guindos that the ECB is determined to tackle fragmentation may give some support in early trading though. If Bund/BTP spreads start widening again today, equities are likely to react negatively.
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